CoPS/IMPACT Working Paper Number G-245

Abstract

The Philippine government intervenes in the domestic rice market through the
imposition of import tariffs and the provision of producer and consumer subsidies. While
policy makers are aware that these programs come with allocative efficiency costs, they
justify the programs on the grounds that they insulate the domestic economy from
unexpected price spikes in the international rice market. An interesting matter for
policy evaluation is to quantify the insulation benefit that the programs provide in
circumstances of sudden severe import price spikes. To examine this question, we
undertake a dynamic CGE simulation in which the Philippines is subject to an external
rice price shock. We find that the insulation benefit of the support programs under a
2008-like event is worth approximately 0.10 per cent of real consumption. However the
cost of insuring against these price spikes is significant. We estimate the annual cost
of the rice market interventions at approximately 0.40 per cent of real consumption.